Jason L Wise

OCR transcription for search; preserved printed pages are authoritative

The court incorporates by reference in this paragraph and adopts as the findings and orders
of this court the document set forth below.

[S/ RUSS KENDIG

Russ Kendig
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

IN RE: ) CHAPTER 7
)

JASON L. WISE, ) CASE NO. 08-60318
)

Debtor. ) JUDGE RUSS KENDIG

) MEMORANDUM OF OPINION
) (NOT INTENDED FOR
) PUBLICATION)
)

Trustee Anne Piero Silagy (“Trustee”) filed a notice of a sale of assets and Debtor
objected. Contemporaneous with the objection, Debtor filed a motion to stay this case under
the Servicemembers Civil Relief Act (“SCRA”).' 50 U.S.C. app. §§ 501 et seq. Trustee is
opposed to the stay. John J. Rutter, on behalf of Trustee, and David L. Smith and Robert H.
Cyperski, attorneys for Debtor, participated in the March 7, 2011 hearing.

The court has jurisdiction of this proceeding pursuant to 28 U.S.C. §§ 1334 and the
general order of reference entered in this district on July 16, 1984. Venue in this district and
division is proper pursuant to 28 U.S.C. § 1409. This is a core proceeding under 28 U.S.C.

157(b)(2).

' The genesis of the SCRA dates back to World War I and the Soldiers’ and Sailors’
Relief Act, Pub.L. No. 65-103, 40 Stat. 440 (1918).

1

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This opinion is not intended for publication or citation. The availability of this
opinion, in electronic or printed form, is not the result of a direct submission by the Court.

FACTS

Debtor earns his livelihood from operation of a pick-up and delivery service, derived
primarily from contracts with FedEx. He owns and operates JLW Transport (“JLW”), an
Ohio entity, as part of this business. At the time of the bankruptcy filing, February 8, 2008,
Debtor was not a member of the military.

On September 9, 2009, Trustee filed a notice of sale of Debtor’s interest in the FedEx
contracts. Debtor objected and an adversary proceeding resulted from the parties’ dispute.
Debtor argued the interests in the FedEx contracts belonged to JLW and were not his
personal property. The court concluded to the contrary, resulting in a finding that the
contracts were property of the estate.

Subsequently, on January 18, 2011, Trustee filed a second notice of sale of the
estate’s interest in the contracts. Debtor again objected and also filed a motion to stay the
case based on Debtor’s military service. Debtor enlisted postpetition in 2009 and is now
serving in Iraq. His deployment is scheduled to end in February 2012.

It is not disputed that the contracts were Debtor’s main source of income. As early
as October 2009, Debtor indicated a desire to possibly purchase the assets from the estate.
Trustee indicated that she did not receive an offer from Debtor until March 2011. Trustee
has two other offers for the assets.

Inextricably connected to the sale issue is the value of a claim held by Amy Sorkin.
Debtor purchased certain FedEx routes from her in 2007. She filed a claim in September 22,
2008 for $331,150 for breach of contract. This is, by far, the largest claim against the estate.
Debtor filed an objection to the claim on March 4, 2011. Trustee’s most recent notice of sale
proposes to sell the routes to Amy Sorkin for cash, plus a waiver of her claim. Another
purchaser made a strictly cash offer, which Trustee now deems the best offer. Debtor’s offer
for the assets is based on a cash offer combined with direct payment of certain claims and
litigation of the Sorkin claim to reduce and/or eliminate it.

LAW

I. The SCRA stay motion

The question is whether Debtor is entitled to a stay of this case under the SCRA. The
purpose of the SCRA is codified in section 502:

(1) to provide for, strengthen, and expedite the

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national defense through protection extended
by this Act. . . to servicemembers . . . to enable
such persons to devote their entire energy to the
defense needs of the Nation; and

(2) to provide for the temporary suspension of judicial
and administrative proceedings and transactions
that may adversely affect the civil rights of service-
members during their military service.

50U.S.C. app. § 502. A plain reading leads the court to conclude that the goal of the statute
is to provide a mechanism to permit servicemembers to focus on their military duties
unhindered by the diversion of lawsuits and similar proceedings which threaten to adversely

impact them.

To accomplish this goal, the SCRA provides for a stay. See 50 U.S.C. app. § 522.

The stay can be authorized “[a]t any stage before final judgment in a civil action or
proceeding in which a servicemember . . . is a party” provided the request for stay is
accompanied by an explanation of how the servicemember’s military duties impinge on
participation in the proceeding, contains a date when the servicemember will be available,
and includes a confirmation letter from the servicemember’s commanding officer which also
provides that leave is not authorized. Id. Courts find that the SCRA is to be ‘liberally
construed’ to accomplish its purpose. See Royster v. Lederle, 128 F.2d 197 (6" Cir. 1942);
Engstrom v. First Nat’] Bank , 47 F.3d 1459 (5" Cir. 1995) (citation omitted). A court has
discretion to determine whether a stay applies based on the facts of the case. Boone v.
Lightner, 319 U.S. 561 (1943). The burden of proof does not reside with a specific party:
“courts called upon to use discretion will usually have enough sound sense to know from
what direction their information should be expected to come.” Id. at 1229. Under this
guidance, the court finds that Debtor bore the burden of proof on his motion.

The SCRA does not mandate a halt to all activity against servicemembers, only those
threatening an adverse impact. Trustee cited several cases which denied application of the
stay based on a finding that no prejudice to the servicemember would result. See, e.g.,
McCoy v. McSorley, 168 S.E.2d 202 (Ga. Ct. App. 1969) (determining stay was not
appropriate when plaintiff was only seeking recovery from insurance policy); Kinsella v.
Kinsella, 353 Mo. 661 (1944) (declining to institute the stay during an appeal of an order
upholding a will on the finding that the interest of the servicemember, who was an heir under
the will, was protected). Other courts, in the face of prejudice, have imposed a modified
stay. See In re Walaschin, 260 B.R. 306 (Bankr. M.D. Fla. 2000); First Union Mortg. Corp.
v. Rush (Inre Rush), 1990 WL 10007403 (Bankr. S.D. Ga. 1990) (unreported). Courts have
latitude to determine what is appropriate based on the circumstances of each case.

The court must determine if the sale of the property threatens Debtor with adverse

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impact thereby warranting imposition of the stay. There is no doubt that Debtor’s loss of the
contracts, his income stream, would have an adverse impact on him. That simplification,
however, ignores the fact that Debtor voluntarily sought the protection of the bankruptcy
court in 2008. As part of the protection, Debtor’s interests in property became property of
the estate. Debtor gave up his property interests in exchange for the protection of the
bankruptcy code and for the benefit of a discharge of his debts. That exchange often involves
the liquidation of assets which flow in to the estate. It is folly to argue that a voluntary
chapter 7 case is adverse to the debtor who initiated the case. The court finds no cause to
stay the entire case based on Debtor’s military service and will focus on one event, the sale.

Moreover, the sale is unlike a foreclosure or other legal actions in which the
servicemember has rights in the collateral, such as the right to redeem. The filing of the case
results in the creation of an estate. 11 U.S.C. § 541. At the time of filing, all of Debtor’s
property passed to the estate. 11 U.S.C. § 541(a). Debtors’ property rights passed long
before entry into the military or the sale motion. He now seeks to bid to purchase the estate’s
property, just like any other bidder, not pursuant to a right of redemption or any other legal
right.

There is no doubt the contracts are property of the estate and Trustee has the right to
sell those assets. The real question must focus on whether Debtor has any pecuniary interest
in the sale entitling him to the right to be involved in the sale process. Most courts find a
debtor lacks standing to object to a sale. See, e.g., 60 East 80" Street Equities, Inc. v. Sapir,
218 F.3d 109 (2™ Cir. 2000); Pascazi v. Fiber Consultants, Inc., 2011 WL 310168 (S.D.N.Y.
2011); Willemain v. Kivitz, 764 F.2d 1019 (4" Cir. 1985); Inre Cormier, 382 B.R. 377, 410
(Bankr. W.D. Mich. 2008) (‘Debtors, particularly chapter 7 debtors, rarely have such a
pecuniary interest because no matter how the estate’s assets are disbursed by the trustee, no
assets will revert to the debtor.’) (citations omitted)). Under this reasoning, Debtor cannot
suffer an adverse impact from an inability to prosecute his objection because he does not

have standing to bring the objection.

Debtor may argue that this case involves a situation where assets would revert to him,
thereby providing standing for his objection. This argument is a red herring. The only way
for Debtor to obtain the contract rights is through a purchase of the asset. This is distinct
from a reversion of excess proceeds, which is a legal right.

The court now focuses on the question of whether Debtor has a right to participate
in the sale, which Debtor has done through the submission of an offer. It is now the
Trustee’s duty to consider the offers and determine the highest and best offer for the benefit
of creditors of the estate. The sale process is not set up to benefit Debtor, but the creditors
of his bankruptcy estate. At the hearing, Trustee suggested that Debtor’s offer was not the
best offer for several reasons. First, Debtor’s ability to obtain the financing was unclear.

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Second, it was dependent on litigation of the Sorkin claim.” At the present time, there
appears nothing that Debtor can do to advance his interest in the sale process beyond what
he has done. The matter now rests with the trustee, who holds the entire bundle of rights.

Debtor has been afforded a full and fair opportunity to participate in this case and has
been represented by counsel throughout. Courts disfavor last minute requests for SCRA
stays in on-going litigation in cases on similar facts. See Comer v. City of Palm Bay (In re
Comer), 265 F.3d 1186 (11" Cir. 2001); Gross v. Williams, 149 F.2d 84 (8" Cir. 1945).

Additionally, Debtor has not been earnest in his efforts to resolve this matter prior
to entering the service. In his opposition to the initial sale, filed October 7, 2009, Debtor
disputed the validity of Amy Sorkin’s claim against the estate, yet failed to file an objection
to the claim until March 4, 2011. Similarly, his response also suggested he would like to
make an offer to the trustee, but he did not submit one until March 2011. A lack of diligence
has also been grounds for rejecting the stay. See Boone, 319 U.S. 561; Comer, 265 F.3d
1186. The court found the contracts were property of the estate in August 2010. Silagy v.
Wise (In re Wise), Case. No. 08-60318, Adv. No. 09-6095 (Bankr. N.D. Ohio August 31,
2010). The court held a hearing on September 20, 2010 and again Debtor indicated a desire
to bid on the asset. Almost six months went by before he actually made an offer.

The confluence of the facts outlined above convince the court to deny Debtor’s
motion for a stay under SCRA.

Further, Debtor failed to meet the technical requirements of the statute. Section
522(b)(2) requires a request for a stay to include:

(A) A letter or other communication setting forth facts
stating the manner in which current military duty
requirements materially affect the servicemember’s
ability to appear and stating a date when the service-
members will be available to appear.

(B) A letter or other communication from the service-
member’s commanding officer stating that the
servicemember’s current military duty prevents
appearance and that military leave is not authorized
for the servicemember at the time of the letter.

2 Debtor’s ability to object to the claim also presents issues of standing. Generally,
courts find chapter 7 debtors do not have standing to object to claims. See Normali v. O’Donnell
(In re O’Donnell, 326 B.R. 901 (B.A.P. 6" Cir. 2005) (citations omitted) (unpublished); In re 1 &

E Corp., 219 B.R. 483 (Bankr. S.D. Ohio 1998).

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50 U.S.C. app. § 522. Debtor attached a personal affidavit and his deployment papers to his
motion for a stay, but failed to include a communication from his commanding officer which

satisfies section 522(b)(2)(B).

For the sum of the above reasons, the court will decline to enter a stay under the
Servicemembers Civil Relief Act.

An order will be issued with this opinion.

# # #

Service List:

John J Rutter

Roetzel & Andress, LPA
222 S. Main Street
Akron, OH 44308

Robert H Cyperski, Aty
1201 30th St NW

Ste 102-B

Canton, OH 44709

David L Smith

101 Central Plaza South
Suite 1003

Canton, OH 44702

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